Foreign investments are still an inexhaustible potential for Poland

Investments in Poland. Inexhaustible potential

1991 was the last time when the economy of Poland went through a recession while GDP fell by 7 percent on an annual basis. Since then the Polish economy was in the the longest period of incessant economic growth in the world, and achieved a high level of stability. The influx of FDI is one of the evidences that the Polish economy is on winning streak. According to the report "Investments in Poland. Inexhaustible potential" prepared by Deloitte consulting company in cooperation with the Polish-German Chamber of Industry and Commerce, German entrepreneurs, who are the largest group of foreign investors in Poland, appreciate the qualifications, productivity and motivation of employees, as well as the quality and availability of local subcontractors. Poland has a great potential in terms of investment attractiveness. The volume of capital per employee is even four times lower than in the developed countries and for example twice lower than in the Czech Republic. The forecasts presented in the report indicate that industrial processing as well as modern business services will become the investor’s particular areas of interest.

The economy of Poland has been developing continuously for 26 years, which is a record among the EU countries. The country’s development is dynamic - in the last two decades GDP per capita (in terms of purchasing power parity) has grown at an average rate of 6% annually. This is the best result in Central Europe. Poland, contrary to other European countries, was not hit that much by the global financial and debt crisis which occurred in the Eurozone. The size of the internal market was a stabilizing factor but it turned out to be less important than a responsible monetary policy, efficient supervision of the financial market and flexible exchange rate. The reduction of taxes in 2007-2008 and the influx of the EU funds contributed to the prosperity as well.

Economic indicators favouring Poland

Investments and capital inflows have been the main factor of Poland's dynamic and stable development. In 2010-2015 their share in Polish GDP was significantly higher than in other Central European countries.

Julia Patorska, Deloitte economist

The decrease in investments in 2016 affected the entire region and resulted mainly from  delays in spending the EU funds and continued uncertainty. According to the forecasts of the most important financial institutions, 2017 and the following years will lead to the revival in investment activity.

According to most of the indexes measuring economic competitiveness and social development in the region, Poland is giving up only to the Czech Republic. This situation is caused by the fact that the economy of our southern neighbour is perceived as mature and industrialized. Czechs may boast of the lowest level of investment risk in the region, but in comparison to Poland they have twice lower GDP growth rate (on average 1.5% in 2010-2015). On the other hand, in comparison to Bulgaria and Romania, Poland scores significantly better in terms of institutional quality, regulation and social development.

Innovations will boost productivity of Poland

The potential of Poland as the seventh largest European economy is still far from exhausted. An important reason for this statement is lower productivity than in highly developed EU countries, and still a small amount of capital. Over the past twenty years Poland has reached about double capital increase per employee, which made Poland overtake Slovakia and Hungary.  Nevertheless, capital saturation is still almost two times lower than in the traditionally industrialized Czech Republic.

Bulgaria was the leader in attracting FDI in 2004-2015, but the most favorable structure of incoming capital was in the Czech Republic, Poland and Slovakia. Relatively low value of production capital in Poland leads to high returns on investments.

Julia Patorska, Deloitte economist

The marginal productivity of capital -  additional output from each invested zloty or euro, is almost four times higher in Poland than in the Eurozone  countries and higher than in Slovakia, the Czech Republic and Hungary. In other Central European countries, there are also significant reserves for improving productivity and, therefore, attractive investment opportunities, especially in relation to the current market conditions in Euroland and the monetary policy pursued by the European Central Bank.

Productivity of Poland may be improved by the implementation of innovative technologies, know-how and improving the efficiency of markets and the public sector.

More robotics and automation

Michael Kern, Head of the Polish-German Chamber of Industry and Commerce

Roboticisation and automation of production can be perceived as opportunities for Polish industry and an incentive for productivity increase. Globally for every 10.000 workers there are 69 industrial robots in the manufacturing sector. In Poland in 2015 this figure was about 28 robots per 10.000 workers in this sector. In comparison to other Central and Eastern European countries, it is still very little, because in the Czech Republic, Slovakia and Hungary, the rate was 93, 79 and 57 respectively, while in Germany over 301. However, over the last two years we observe the growing interest of Polish production companies in production automation technologies offered by German suppliers.

Manufacturing and business services

According to German investors participating in the Deloitte study, one of the priorities of the government should be to break the barriers between science and the economy. They point out that, despite the obvious benefits of BPO/SSC development, without adequate reforms, it will not be possible to attract more advanced business services and R&D centers. Polish startups may be a bargaining chip for  attracting such investments. Some specialists point out that more "traditional" industries, such as food and beverage production and retail trade, still have potential in Poland, especially due to high aspirations and Polish consumers’ needs and relatively low wages.

Germany is the most important country exporting FDI capital to Poland. By 2015 German companies invested PLN 135.9 billion in Poland, equivalent to almost one fifth of FDI. Nearly all (95.6%) German investors surveyed by the Polish-German Chamber of Commerce and Industry have declared that they would invest in Poland again. They consistently value highly Poland's membership in the EU, which enhances the quality and stability of the regulatory environment. Other factors that prompted German companies to invest in Poland are the qualifications, productivity and motivation of employees, as well as the quality and availability of local sub-suppliers.

Concern about the pace of legislative changes of investors

Investors appreciate the economic performance of Poland, its variety of investment opportunities and the stability of the economy, but they pay attention to the increasing uncertainty of the regulatory environment. Another problem that still needs to be solved is the level of complexity and the way of enforcing tax regulations. However, tax rates itself do not give rise to any concerns.

Marcin Diakonowicz, Deloitte Partner, German Desk Leader in Poland and Central Europe

The statements made by German investors operating in Poland for many years show that membership in the EU is an important stabilizing factor. In addition, the legal frameworks are in many cases similar to those in Germany, so investors from this country find it  easy to run their businesses in Poland. However, they point out that the pace of legislative changes that are being introduced is thought-provoking. In their opinion, the communication consistency of the planned changes is also important, but is not always granted.

Report available in Polish and German